The Ultimate Guide to Life Insurance

Consider this: you buy yourself a car. You pay a monthly insurance fee so that if the car is stolen, the insurance company pays you the value at which you insured it so you can replace your car. Life insurance works in more or less the same way. You insure your life i.e. your future earnings, you pay a fee (or a “premium”) to the insurance company; if you lose your life the insurance company pays out the value for which you insured your life and gives it to your family or dependents.

The main difference between normal asset insurance (like car insurance) and life insurance is that you can choose whether to get a lump sum payout which is called a “death benefit” or an annuity,   the death benefit plus a smaller, continuous monthly payout. Oftentimes the death benefit is non-taxable at the federal level so if you buy a million dollars in life insurance, your beneficiaries will receive a million dollars tax-free.